Should I lease or buy a car for my business?

Whether you’re a business owner and looking at a company car or van for yourself or looking to add it as an employee benefit to some of your staff, it can be a great investment towards your future. But what’s right for your business – buying or leasing? In this article we aim to point out some of the pros and cons of each and what other things you need to consider.

Firstly, let’s talk about leasing – what is it?

Lots of businesses choose to lease vehicles for their business, as it can be a more cost-effective alternative to buying outright, especially when you are starting up. With leasing, you make fixed monthly payments. At the end of the lease period you won’t own the vehicle but may have the opportunity to extend the lease agreement or start a new one. Or you can swap your car or van after an average of three years for a brand-new one.

Leasing is popular among businesses of all sizes who rely on vehicles, whether that’s a single van or an entire fleet. It’s particularly useful if you have limited cash as you don’t need a large sum upfront, or if you want to upgrade the vehicle every few years.

Pros of leasing

  • Low upfront payment followed by regular monthly payments
  • Benefits of running a brand-new vehicle with manufacturer warranties
  • Servicing and maintenance can be added to the lease agreements, to help you manage unexpected repair bills
  • You may be able to claim some or all of the VAT back depending on which scheme your business falls under.

Cons

  • You won’t own the vehicle at the end of the lease and it won’t be considered a financial asset for your business
  • The lease agreement is often based on the annual mileage, so if the vehicle is going to be doing more than 30,000 miles a year, you may struggle to get a lease agreement from some providers.

When it comes to insuring a lease vehicle, as the business owner, it will be your responsibility to make sure you’ve got the right cover in place. However, this can be complicated as some direct insurers or comparison sites don’t allow “Lease Company” in the field where it states ‘Vehicle Owner’. That’s why it’s useful to speak to a specialist insurance broker, such as A-Plan to ensure that you get the right cover.

Buying

Pros – Buying a vehicle for a business is not only a bonus as it can be listed as a business expense on your tax return but it’s a worthy investment too. For example, if you decide you’ve outgrown a vehicle in five years, you’ll be able to sell it to fund your upgrade. Going back to tax advantages, it’s also worth considering that mileage and other expenses can be written off. You might be able to claim 100% of the VAT on a new car if you can prove you use it only for business too.

Cons – All cars and vans, but typically new ones, lose their value rather quickly. So quickly, in fact, that it loses a decent percentage of its value the moment it’s driven off the forecourt. In the first three years, it’s estimated that a car can lose up to 60% of its value. And this is before you start factoring in the additional upfront cost. However, you could consider Gap insurance  which can help to cover the cost of that depreciation in the event of a total loss claim.

If you’re looking to lease or buy, speak to A-Plan – we work with a panel of insurers to ensure you get the right cover at a competitive price.